Trade Practices Law - Key Provisions that all businesses should be aware of!!!

Date: April 22, 2007

Authors: LAC Lawyers

Key provisions of the Trade Practices Act that a business should be aware of in order to avoid a breach of the Act.

Price Fixing

Price fixing is an arrangement or agreement with a competitor to fix, control or maintain a price for products or services you provide. It is also unlawful to attempt to fix prices.

Price fixing includes an arrangement about the discount, rebate or credit.

Price fixing is unlawful whether or not it has an effect on competition.

The agreement, arrangement or understanding does not have to be in writing.

Third Line Forcing

Section 47(6) prohibits a party forcing goods or services in favour of a third party. The most commonly known cases of illegal third line forcing are those involving financiers granting finance on the condition that the borrower takes insurance from an insurance company nominated by such a financier.

In order for there to be a section 47(6) breach the following ingredients must be present:-

Two products – there is no illegality unless a party supplies one product and “forces” another product;
Three parties – that is the supplier of goods or services must force other goods or services in favour of a third party;
A condition whereby the acquirer of goods or services cannot acquire them without also being required to acquire other goods or services from another named third party.

Terms and conditions by a supplier on a buyer and vice versa in Australian business are referred to as vertical restraints. The usual kinds of vertical restraints include:

Exclusive dealing – the buyer agrees only to buy from the seller;
Resale price maintenance – the buyer agrees not to resell the product below a certain price;
Territorial or customer restraints – where the buyer agrees to resell only in certain areas or to certain customers;
Full-time forcing – the buyer must buy the full line of products of the seller; and
Tying – as a condition of buying one product, the buyer must also buy another product.

Third line forcing is a form of tying whereby the product (for the purpose of the present discussion the term ‘product’ refers to both goods and services) of another supplier is forced on the buyer. More specifically, a tying arrangement is a supply contract in which the sale of one or more products is conditional upon the buyer agreeing to buy one or more additional products from another supplier.

Misuse of Market Power

A business that has a substantial degree of power in a market is prohibited from taking advantage of that power for the purpose of:

Eliminating or substantially damaging a competitor
Preventing the entry of a person into any market or
Deterring or preventing a person from engaging in competitive conduct in any market (section 46(1))

Advertisements and Misleading Representations

What should be checked when you produce promotional material?

Promotional material must be correct and not misleading.
Do not attempt with fine print to set out key terms and conditions of the offer. If the main text is misleading, it cannot be rectified with fine print.
Give a clear explanation of unusual aspects of the offer or the product.
There must be no difference between your product and the promotional material.
You must be very careful using the word “free”. Do not inflate the price of the other product that the consumer must purchase in order to get a “free” product.

Corrective advertising

The ACCC may apply to the Federal Court for orders that include corrective advertising that could result in your placing an advertisement correcting the misleading advertisement. Further an order may direct the offending party to refund to the customers initially mislead by the advertisement. The impugned conduct could have serious ramifications affecting the goodwill of the company.

Directors’ Liabilities and Damages

A great threat is posed to directors in relation to statements made in connection with dealings through the impact of liability established through the misleading and deceptive conduct provisions of s52 of the Trade Practices Act. Whilst section 52 deals with a “corporation” engaging in conduct, section 75B of the Act can be used to join a director as a party to a civil action for damages.